Trade in Distribution Services in South Africa

The study provides a general overview of current issues in the South African Distribution Sector. It is restricted to focussing on three industries namely, pharmaceutical distribution, distribution in the food industry and distribution in the automotive industry. In examining the behaviour of SA retail pharmacies it becomes apparent that retailers have attempted to obtain political support for regulations that bolster cartel structures and behaviour, and which discourages innovation in distribution. The outcome is perverse. Retailers do not achieve economies of scale, while consumers do not receive lower prices. In the SA food sector it was found that retail and wholesale industries are highly concentrated. The result is that retail and wholesale chains largely compete with one another on price and operate with low margins. Manufactures distribute direct to retail chains at the discretion of the chains. In examining the SA automotive industry it was found that the industry has developed from a highly protected, inward-focused industry to one with a marked export orientation. All South African light vehicle assemblers are either affiliates or licensees of foreign MNEs. The key factors that have assisted in integrating the industry into global networks have been the incentives provided under the motor industry development programme (MIDP), falling tariff protection that has increased import competition, and access to international markets through the parent company. The study also notes the increasing importance of E-commerce in the retail chain. The Internet mode of retail is used extensively in the South African distribution channel, however South Africa's lack of bandwidth development may be constraining South African retailers from effectively competing with foreign retailers.